The U.S. Department of Labor (DOL) today released the long-anticipated final rule updating the “white collar worker exemption” under the Fair Labor Standards Act (FLSA). The DOL began working on updated regulations in 2015, which will expand the availability of overtime pay to some previously considered exempt white collar workers. The final rule takes effect on December 1, 2016, so employers must begin to prepare now.

Key Provisions
The final rule updates the salary and compensation levels needed for executive, administrative, and professional workers – white collar workers – to be exempt from overtime compensation. Under the current federal rule, those earning more than $23,660 per year are not eligible for overtime pay. The new rule doubles this minimum salary threshold to $47,476 per year, or $913 per week. This figure is based on the 40th percentile of full-time salaried workers in the South, which is the lowest-income region, and will automatically update every three years to reflect wage growth. Also updated is the annual compensation threshold for highly compensated employees, which increases from $100,000 to $134,004.
Importantly, the final rule also amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments – including commissions – to satisfy up to 10% of the new standard salary level.
Noticeably absent from the final rule is a bright-line duties test for employers to use in determining which workers are eligible for overtime pay. The DOL previously proposed a stricter duties test, including a requirement that a worker spend at least 50% of his or her time performing exempt job duties in order to be exempt from overtime pay. Commenters were overwhelmingly opposed to this proposal, to which the DOL responded by keeping the duties test unchanged.

Next Steps
While the DOL suggests that this final rule brings greater clarity for employers and expanded protection for employees, the changes that will take effect on December 1 will have a significant impact on employers across all industries. Employers should act now by reviewing employee classifications and identifying which employees will no longer be considered exempt under this new rule.
California employers need to remain extra alert, as the new federal rule is not consistent with State Law. California’s annual threshold requirement is set lower at $41,600, which means that California employers will need to follow federal salary standards. However, because California maintains a duties test, employers will also need to continue to apply the State rule that workers spend at least 51% of their time engaged in exempt job duties in order to remain ineligible from overtime pay.